Optimal Time Consistent Fiscal Policy with Overlapping Generations

  title={Optimal Time Consistent Fiscal Policy with Overlapping Generations},
  author={Steven Benton Ambler},
The paper analyzes optimal fiscal policy in an overlapping generations model with two-period lived households. The government must choose tax rates and borrowing to finance an exogenous stream of expenditures. It cannot commit to future policies, so announced policies that are not time consistent are not credible. Optimal time-consistent policies are derived using dynamic programming. In contrast to representative agent models with commitment, optimal capital tax rates are positive in the long… CONTINUE READING

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